Thursday, April 8, 2010

This is a milestone of sorts, until a new record-setting price inevitably appears as a result of the accommodative monetary policies of the worlds' central banks and the global mania for curbing carbon emissions. Gasoline has now hit $9 a gallon in parts of the U.K. Can U.S. consumers even imagine a price that high? It wouldn't be too hard to achieve, given the weakness in the dollar, the Fed's super-accommodative monetary policy, the renewed push for a cap and trade regime or a carbon tax to reduce hydrocarbon fuel usage, and the rising ethanol requirements (ethanol being a less efficient fuel).

Remarkably, even $9 a gallon gasoline may not matter much, in our own lifetimes (I am being optimistic here, on two levels).

GM is introducing the PHEV this year. You will be able to drive 40 miles on the batteries, and extend range for hundreds miles more through an onboard engine.

This is a terrific technological advancement, and yet may be eclipsed quickly. Nissan is also introducing an all-battery car soon, the Leaf. These are first generation efforts, but incredible advancement from just 10 years ago. Lithium batteries are advancing rapidly.

I suspect most people burn most their gasoline in trips under 40 miles. So gasoline is $9 a gallon, but you burn one-third as much? Your gasoline bills shrink!

The other wonderful upside of a PHEV is that it does not pollute city air (when on battery power).

One the key failings of internal combustion engines is, of course, pollution. I am not sure about the right to pollute the air other people breath. If there is a right, my guess it is the right to breath clean air, as breathing is not volitional.

There is also the unresolved question of property rights and air pollution. If you pour toxic waste on somebody else's private land, that is a violation of that person's property rights. Air pollution--very much the same. We know in Los Angeles that air pollution lowers property values. Yet property owners are never compensated for the damage that air pollution does to their property values.

In the same fashion, when Newport Beach CA virtually outlawed high-rise condo towers, property owners were not compensated for the loss of value to their land. When property is downsized, there usually is no mechanism for compensation. It is local communism.

Air pollution likewise is a of form of unsolicited communism, forcing the whole community to bear some of the the costs of production or transportation, without compensation.

I prefer heavy gasoline taxes to income or capital gains taxes. In line with Milton Friedman and other classic economists, I prefer consumption taxes over taxes on productive behavior.

Given that the trillions of dollars we send to oil thug states seems to finance terrorism that we then spend more trillions fighting, the PHEVs may also have other benefits.

All you electric car advocates should take a long hard look at how most electricity in this country is generated:Coal - 44.9%Natural Gas - 23.4%Nuclear = 20.3%Hydroelectric - 6.9%Other renewables - 3.6%Petroleum - 1%

Also, it's about twice as expensive to generate Electricity with Natural Gas as with Coal.

Many of our Electric grids already run at close to capacity, especially in the busy Summer driving season. You electric car knotheads act as if electricity was free and it's source was non-polluting. Last I checked, coal was the dirtiest way to generate electricity. If you're waiting for the renewable category to increase, may I suggest you invest in a bicycle first, because you're going to need it

It was my understanding that the plug-ins would be 'plugged in' during the overnight off peak hours. Maybe I'm missing something.

The only thing I see that can reduce coal electricity generation by anything resembling a meaningful amount is nuclear. We should all be aware of the time lags that involves. Natty gas is still too expensive for base loads and the windmill ideas make us feel good but can't shoulder the demand an economy our size requires. Solar is hopeleesly expensive. Looks to me like coal for base load electricity generation is with us until we have enough nuclear reactors to replace them.

How about distributive energy? With todays technological breakthroughs in solar and wind energy, coupled with improvements in battery technology, the idea of individual houses producing their own energy needs and in many cases more than their individual needs, is a reality whose time has come.

Of course this goes against the centralized power mononoply we now have and will be very difficult to break. And there is the argument of it adding too much to the cost of homes and commercial buildings, but that is a strawman argument IMO. One that can be ameliorated with creative incentives.

Benjamin, I like your positive outlook concerning the role of invention and innovation that is mostly hidden from our view and hence not considered in the overall equation of what our future will bring. It is so easy to look at the negative, which is occuring in present time or has occured in past time. But the creative inventiveness of our species is largely hidden from our view in the future.

If we can keep ourselves from the jaws of socialism, which is the greatest destroyer of creativity, there is little doubt in my mind that the worlds energy problems will be solved in the next decade or two. We are in an interim period and will do just fine.

I scarcely know where to begin, but here is an article that I think should be of interest to anyone really interested in the subject of energy supplies and how they may or may not effect the economic outlook.

http://www.energybulletin.net/node/52311

The import of this is that in order to implement the bridges that are so blithely bandied about we need a steady and inexpensive source of energy, just as we have had up to this point. In fact, because energy has been so cheap as to be almost negligible, most have not given it much thought until now. The mere fact that we are looking to tar sands, and "oil" shale, and shale gas to keep supply up with demand ought to raise logical questions.

Anyway, now that things are getting questionable the answers to those questions are becoming uncomfortable to anyone unsatisfied with slogans and bland assurances. Whenever reserves numbers are examined whether it is for coal or oil or nat gas the old assumptions are falling, and the reserves numbers are being revised downward, as much as a third of the total downward in the case of oil. Coal reserves have also been revised downward.

So what? Well all of our secure assumptions about what we are capable of accomplishing have been created in times of rising energy supplies and may not hold up in times of declining energy supplies. I hardly imagine that I could convince anyone here that my rather gloomy view of the future is the correct one, but all the assurances and rosey projections I read here are based only on ideology and assumptions, not on a careful study of the reality of energy and its role in the economy. If I am wrong about that, please forgive me, I am ready to learn. I think Scott will attest that, however deluded he may think me to be, I do have an open mind to ideas I do not hold, and am ready to learn from others I disagree with.

This is an issue I find of primary importance because without adequate energy supplies the economy cannot grow and without growth, as currently structured, the economy is unsustainable. Show me where I am wrong (please, I would be happy to be wrong) but don't try to convince me with optimistic handwaving and appeals to human ingenuity. You guys are smart, how are we REALLY going to solve the problems of energy density, liquid fuels, lousy infrastructure, etc., WITHOUT massive government "participation" (which can be damaging to liberty). How will it happen in the real world where there is no political will, where the market seems blind because of flawed information and assumptions, and where the Players WILL not see what is coming down the pike?

Convince me. If anyone is really interested in discussing this Scott hereby has my permission to give my email address to anyone interested in such a conversation. I welcome it.

Here is an interesting news item that may cause increases in gas price and can't be blamed on the government. If we had all the oil we needed then this would mean nothing.

http://www.energybulletin.net/node/52351

Falling water levels in the Guri dam in Venezuela may mean a reduction of oil exports to the US. Venezuela exports 800K barrels of oil/day with a 2 day trip to NOLA and their main electricity source may shut down by late May unless enough rain falls.

I went to your energy bulliten site. It looks to me (to ME, OK?) like a gathering spot for peak oil believers. Also, a site asking for donations to help keep the thing afloat leaves me a little suspicious. Just me though.

I respect your opinion and appreciate your invitation for dialog. Personally, however, I am not inclined to enter into political discussions, and this sounds like one to me. So I respectfully pass on your invite. Maybe some of the other guys are interested.

Doug: peak oil may be upon us but I am not convinced and in any event it is best left to the market to make that determination. The best thing that could happen from a peak oil perspective is that oil becomes scarce and it's price goes up. As I have shown in previoius post, when oil gets expensive we use less of it. And indeed, I think oil is becoming expensive once again. This is sure to lead to conservation measure and it will further propel the search for alternatives. What more could you ask for? The free market is going to solve this problem in the most cost effective manner in the end and I firmly believe that

Well, John, I appreciate the good wishes. And the Energy Bulletin is a blog which concentrates on peak oil, sort of the way this blog concentrates on economics. As a non-profit it is like most other non-profits, looking for donations. I don't consider peak oil to be a partisan issue, if that's what you mean by political, but I don't see how economics as discussed here or resource issues can help but be political. I do appreciate your taking the time to look into it.

Scott, I hope you are right, time will tell. What do you think is the price at which the electorate and the economy will begin to freak out again? I think the problem is that high prices for oil tend to create the conditions for a price crash soon after. During the recession projects that were begun with high prices were suspended or canceled, discouraging some of the development of alternatives. I think ethanol producers are in bad shape relative to where they thought they would be during the days of high gas prices.

Doug: I think that if gasoline prices approach and then exceed $4/gal, that you will see lots of unrest in the country.

And yes, rising prices do sow the seeds of falling prices, if the higher prices stimulate more production and discourage consumption. That is the way the price signal works. If peak oil is a reality, however, then prices are going to become and remain quite high in real terms. That will serve to limit consumption, and stimulate the search for alternatives. This is already happening, by the way. As my charts show, the real price of oil is historically quite high.

Scott, what if the higher prices do not lead to increased supply? Would this not mean that the equalization between supply and demand would have to come from demand destruction, which can mean either economic contraction or conservation, probably both. Economic contraction would mean trouble (as it has to some extent already) for development to both increased fossil fuel supply and alternative development. Reduced price for petroleum discourages exploitation of unconventional sources and dampens enthusiasm for replacement tech, does it not? Sounds like a roller coaster ride to me. If we had plenty of the supply this would not hold true, with suppliers just pumping more or less to control price. Have I got this wrong?

There is a lot of disagreement in the peak oil "community" about what this will mean. Some are quite optimistic about alternative energy sources, others believe that it is too late for scaling up. I tend to be a great deal more agnostic about this than in the past, thanks in large part to you challenging my viewpoint, though I still tend to the pessimistic side of agnostic. I'll keep heating with wood and saving up for switching to PV power... perhaps my agnosticism is a product of wishful thinking about the cost of solar and continued access to cordwood. On the other hand 12 cords of wood is a lot to stack and it helps keep us in shape.

As a post script to that: the price of a cord of hardwood fell by $10/cord over last year at this time, as I have just found out. I ca only guess that it has to do with the cost of trucking, or perhaps the panic about increased heating oil has eased and demand is down. I'll find out when I get back to Mass and talk to my supplier when he delivers the first load.